U.S. home prices jumped in January from a year earlier at the fastest pace in nearly two and a half years, as a tight supply of houses for sale spurred bidding wars in many cities.
As The Associated Press reports, the Standard & Poor’s CoreLogic Case-Shiller 20-city home price index, released today, increased 5.7% in January, the most since July 2014.
Americans stepped up homebuying in January, even as mortgage rates rose. Many buyers likely sought to close their deals before rates increased further.
The Federal Reserve on March 15 implemented its third rate hike in two years, but economists at S&P Dow Jones Indices say higher rates won’t slow sales until later this year. Still-low mortgage rates and steady hiring will likely support further housing demand, says Mark Fleming, chief economist at First American.
“Low mortgage rates and economic growth set against a low inventory of homes for sale will drive a strong seller’s market and further rising prices this spring,” he says.
David Blitzer, chairman of the S&P Dow Jones Index Committee, says the Fed’s most recent increase won’t push up mortgage rates very much and shouldn’t affect sales. Average 30-year mortgage rates typically track the yield on the 10-year Treasury note. That yield is usually driven by several factors, including broader economic conditions and investor demand for safe assets such as Treasurys.
Still, should the Fed raise rates three or four more times this year, “rising mortgage rates could become a concern,” Blitzer says. Fed officials currently forecast two additional hikes.
Robust price gains could eventually make housing less affordable, Blitzer says. That may already be discouraging some homeowners from “trading up” to a new home, making the supply crunch worse as fewer people put their homes up for sale.
“At some point, this process will force prices to level off and decline—however, we don’t appear to be there yet,” Blitzer says.
The median price of homes in the Baton Rouge area in January dropped about 7% to $165,000 as the months supply of inventory decreased 31% year over year to 2.9.
